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Rain or Shine: Where is the Weather Effect?

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  • William N. Goetzmann
  • Ning Zhu

Abstract

"There is considerable empirical evidence that emotion influences decision-making. In this paper, we use a database of individual investor accounts to examine the weather effects on traders. Our analysis of the trading activity in five major US cities over a six-year period finds virtually no difference in individuals' propensity to buy or sell equities on cloudy days as opposed to sunny days. If the association between cloud cover and stock returns documented for New York and other world cities is indeed caused by investor mood swings, our findings suggest that researchers should focus on the attitudes of market-makers, news providers or other agents physically located in the city hosting the exchange. NYSE spreads widen on cloudy days. When we control for this, the weather effect becomes smaller and insignificant. We interpret this as evidence that the behaviour of market-makers, rather than individual investors, may be responsible for the relation between returns and weather". Copyright Blackwell Publishers Ltd, 2005.

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Bibliographic Info

Article provided by European Financial Management Association in its journal European Financial Management.

Volume (Year): 11 (2005)
Issue (Month): 5 ()
Pages: 559-578

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Handle: RePEc:bla:eufman:v:11:y:2005:i:5:p:559-578

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  1. Massimo Massa & William Goetzmann, 2000. "Daily Momentum And Contrarian Behavior Of Index Fund Investors," Yale School of Management Working Papers, Yale School of Management ysm134, Yale School of Management, revised 01 Apr 2001.
  2. David Easley & Soeren Hvidkjaer & Maureen O'Hara, 2002. "Is Information Risk a Determinant of Asset Returns?," Journal of Finance, American Finance Association, American Finance Association, vol. 57(5), pages 2185-2221, October.
  3. Chordia, Tarun & Subrahmanyam, Avanidhar & Anshuman, V. Ravi, 2001. "Trading activity and expected stock returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 59(1), pages 3-32, January.
  4. Shapira, Zur & Venezia, Itzhak, 2001. "Patterns of behavior of professionally managed and independent investors," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1573-1587, August.
  5. Saunders, Edward M, Jr, 1993. "Stock Prices and Wall Street Weather," American Economic Review, American Economic Association, vol. 83(5), pages 1337-45, December.
  6. Stephen Brown & William Goetzmann & Takato Hiraki & Noriyoshi Shiraishi & Masahiro Watanabe, 2002. "Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows," Yale School of Management Working Papers, Yale School of Management ysm274, Yale School of Management, revised 01 Apr 2008.
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Cited by:
  1. Svetlana Vlady & Ekrem Tufan & Bahattin Hamarat, 2011. "Causality Of Weather Conditions In Australian Stock Equity Returns," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, University of Craiova, Faculty of Economics and Business Administration, vol. 1(16), pages 161-175, April.
  2. Ethan Watson & Mary C. Funck, 2012. "A cloudy day in the market: short selling behavioural bias or trading strategy," International Journal of Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 8(3), pages 238-255.
  3. Marie Connolly Pray, 2011. "Some Like It Mild and Not Too Wet: the Influence of Weather on Subjective Well-Being," Cahiers de recherche 1116, CIRPEE.
  4. Erik Theissen, 2007. "An analysis of private investors' stock market return forecasts," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 17(1), pages 35-43.
  5. De Silva, Dakshina G. & Pownall, Rachel A.J. & Wolk, Leonard, 2012. "Does the sun ‘shine’ on art prices?," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 167-178.
  6. Verrier, Tatjana, 2010. "Selected Essays in Stock Market Liquidity. Innovative XLM Measure at the Frankfurt Stock Exchange: Cloudy Skies, Time of the Day and the Role of Designated Sponsors for Stock Market Liquidity," EconStor Theses, ZBW - German National Library of Economics, number 41600.
  7. Yoon, Seong-Min & Kang, Sang Hoon, 2009. "Weather effects on returns: Evidence from the Korean stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(5), pages 682-690.
  8. Svetlana Vlady & Ekrem Tufan, PhD, 2011. "Causality Of Weather Conditions In Australian Stock Equity Returns," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, University of Craiova, Faculty of Economics and Business Administration, vol. 1(17), pages 184-197, November.
  9. Kaustia, Markku & Rantapuska, Elias, 2013. "Does mood affect trading behavior?," SAFE Working Paper Series 4, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  10. Levy, Ori & Galili, Itai, 2008. "Stock purchase and the weather: Individual differences," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 755-767, September.
  11. Kamstra, Mark J. & Kramer, Lisa A. & Levi, Maurice D., 2012. "A careful re-examination of seasonality in international stock markets: Comment on sentiment and stock returns," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 934-956.
  12. Symeonidis, Lazaros & Daskalakis, George & Markellos, Raphael N., 2010. "Does the weather affect stock market volatility?," Finance Research Letters, Elsevier, Elsevier, vol. 7(4), pages 214-223, December.
  13. Christos Floros, 2011. "On the relationship between weather and stock market returns," Studies in Economics and Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 28(1), pages 5-13, March.
  14. Goodfellow, Christiane & Schiereck, Dirk & Verrier, Tatjana, 2010. "Does screen trading weather the weather? A note on cloudy skies, liquidity, and computerized stock markets," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 77-80, March.
  15. Kelly, Patrick J. & Meschke, Felix, 2010. "Sentiment and stock returns: The SAD anomaly revisited," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1308-1326, June.
  16. Rayenda Brahmana & Chee-Wooi Hooy & Zamri Ahmad, 2012. "Weather, investor irrationality and day-of-the-week anomaly: case of Indonesia," Journal of Bioeconomics, Springer, Springer, vol. 14(2), pages 129-146, July.
  17. Chang, Shao-Chi & Chen, Sheng-Syan & Chou, Robin K. & Lin, Yueh-Hsiang, 2008. "Weather and intraday patterns in stock returns and trading activity," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1754-1766, September.
  18. Jacobsen, Ben & Marquering, Wessel, 2008. "Is it the weather?," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 526-540, April.
  19. Ronald Doeswijk, 2008. "The Optimism Cycle: Sell in May," De Economist, Springer, Springer, vol. 156(2), pages 175-200, June.

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